Many employees dream of moving abroad and ploughing their furrow in new markets. Some are lucky enough to find that their aspirations are matched by their employers long-term plans for them and their business.
Here is a simple account of a salary negotiation we were recently engaged on:
The UK based employee was in late stage talks with her employer about setting up an operation in UAE from where they might engage new potential clients and service the needs of one of their largest existing clients more locally.
The employee in question wanted to ensure that moving abroad wouldn't result in a real terms pay cut because of exchange rate volatility. Basically she wanted to make sure that her AED income reflected what she would have been paid were she still working in London.
To do this we looked at the lowest GBP to AED rate of exchange for the previous 12 months. We identified the lowest value of the pound against AED over that 12 months, but, you could use whatever time frame you want. We chose 12 months because the plans were for this employee to remain on location for two years, so, 'recent' moves in the rate we perfectly relevant. Also, given the distinct and almost unique conditions affecting sterling over the last two years, it was not totally unreasonable to imagine that, if those conditions were to resurface or reappear and result in a further drop in the value of the pound - further than it had fallen over the past 12 months - the viability of the entire endeavour might require review.
At the time of assessment it was agreed that the pound had been some 4% lower at certain points over the previous 12 months. If, from the day of singing any contract, the rate were to drop to that level again then the cost to the business would be at least 4% higher. A cost that the employer may have felt unwilling to bear were the employee not exposed to the same extent.
So, we suggested the employee offer to revise her AED pay figure downwards, in line with the market, were the pound to drop to that level. In exchange for this concession she was content to ask her employer to match the upside risk she faced were the pound to improve by the same margin.
So, if the pound improved by 4% then the AED salary she was owed, in essence the AED equivalent of her GBP salary were she working in the UK, should be revise and increased up by that margin.
We encouraged her to confirm that the terms should be rate dependent rather than time dependent. So, if the rate moved up by 4% the day after signing of the contract then the AED equivalent salary should, in her view, be increased by that margin because the GBP cost to the business had been reduced by that percentage.
The range in question was therefore 8% and the exposure borne was the same for both the employee and employer. This seemed fair and we were thanked for our involvement because we were able to translate her expectations in to language that showed she had considered her employer's exposure as well as her own. It was an arrangement that could then be formally codified.
We'll let you know if this employee ended up better off (by no more than 4% of course) because of our input.
The employee is also interested in discussing how to hedge against her unspent AED income losing value against GBP over the two years she expects to be non-resident. We can connect her with excellent tax advisers who can guide her on structuring this.
Furthermore, her employer may wish to fix their costs by hedging their exposure to a drop in the pound. This is something we can assist with also and may well form a post in due course about how employers can cement their costs, reduce their FX margins and refine management of their various currency activities more directly and more easily.
It is all part of the service.